JOIN USMaking more space for malls
Market observers will agree that retail real estate seems to be moving slowly up the graph in Bangalore. In fact, more than half of the proposed shopping space that is intended for the year will be coming up at Bangalore as well as in Mumbai and the NCR.
Summarising the year that went by, Abhishek Kiran Gupta, Head - Research & REIS, Jones Lang LaSalle India, “In 2010, both domestic and foreign retailers re-drafted their plans for expansion into various Indian cities.
The immediate effect was felt by the increase in high-street transactions as suitable space was not available in prime shopping centres.
“Several shopping centre developers focused on execution of their ongoing projects rather than expansion. Rents have found support at the current levels and there is little likelihood of further downward movement. The rationalised rents will help retailers who are seeking to widen their field of operation. Revenue sharing models have become more popular with developers, and this has led to better mall management.” Coming to the present year, one the main predictions from Bijay Aggarwal, Managing Director, Salarpuria Sattva is that selling of retail space is not going to be the mantra this year.
Gradual rise in demand
He says, “As a result of the recession of 2008-09’, several retail projects were stopped mid-way or did not take off. This led to a lower supply of retail. Today, as we have moved out of the recessionary mode, the demand is gradually on the increase and the prospects look extremely good for this year. In fact, what will work is a mix of leasing as well as revenue sharing. Rentals are a thing of the past.”
Irfan Razack, CMD, Prestige Group, elaborates extensively on the retail realty prospects of 2011 saying, “There is immense scope for retail development in Bangalore keeping in mind that there has been a significant increase in the spending power of the average Bangalorean in the last decade with the IT boom. Also, Bangalore is very cosmopolitan in nature and in addition, the younger generation represents a majority of the population in the city. All this and more makes Bangalore ideal for retail development.”
“Like most major metro cities in the country, Bangalore too is under-utilised in terms of retail real estate. Malls will continue to gain ascendancy, becoming the preferred destination for shopping. It is also crucial that the local city infrastructure keeps pace with the retail development to ensure healthy organic and structured growth. “After the difficult 2008-09, rentals across the country have stabilised and are certainly at more realistic levels now. Concepts like revenue sharing, which are now in vogue, were in fact pioneered by us several years ago. We do see a gradual increase in rentals over the coming years though. Generally the rent is determined by volumes and the turnover a retailer can achieve. A retailer cannot afford more than 10% of his revenue as rent. This needs to be kept in mind while determining rentals and also the projected IRRs for a mall developer.”
Abhishek Kiran Gupta completes this round-up of predictions saying that this year, many shopping centres across geographies and the value, lifestyle, specialty and luxury retail segments will see completion. However, the emphasis will be on value and necessity retailing in the Tier III locations. Growth of lifestyle and luxury retail will largely be limited to the Tier I and Tier II cities.
“While select developers would demand a higher rent for their upcoming projects, average valuations are not likely to rise too soon. The possibility of 100% FDI being permitted for multi-brand retailing holds strong promises for retail real estate in India. However, due to the associated beliefs of negative effects to unorganised retail, the proposition is not likely to be accepted without a fair degree of opposition.”
Malls vs standalone
In such an environment, a reasonable question for those hoping to enter the retail realty line is what will work better – malls or standalone outfits? Bijay Aggarwal believes that malls are the key to tomorrow’s retail realty. He says, “Standalone units such as Central, which are on the scale of a mall will be successful. However, any standalone between 40 ,000 sq ft and 1 lakh sq ft is not going to work. Any standalone that does come in should be two lakh sq ft at the minimum or more.“
Irfan Razack believes the Indian retail sector is booming and mall growth is being seen as a clear indicator of the economic prosperity in India.
These shopping cum entertainment destinations are getting bigger and better, sporting multiplexes and food courts to woo shoppers. Dominant retail activity is visible in the top cities but Tier II and III cities are also witnessing a change.
He says, “Retail would also benefit hugely over all from the opening of FDI, as this will mean many more brands and categories will be encouraged to enter the country. I see malls taking precedence as they offer customers a mix of all types of products and services including entertainment and food under a single roof.”
Tomorrow’s retail hotspots
Bijay Aggarwal feels that the Outer Ring Road holds a great deal of potential as does Bellary road in North Bangalore. He also feels that despite the mall at Malleshwaram, there is ample scope for a value mall at Peenya.
Irfan says, “Within Bangalore, the southern part of the city will continue to grow, especially the areas of Jayanagar, Bannerghatta and Kanakpura Road.
“Needless to say, Whitefield is fast developing into a satellite hub to the city and will soon become a self-sustained locale, especially now with an elaborate social infrastructure in place with prominent malls in the area making a mark.
“North Bangalore will however take some time to gather momentum and keep pace with other parts of the city that are witnessing rapid growth.”
He adds that the real estate development fraternity can meet this demand provided a few key considerations are kept in mind:
*Malls should be designed and customised individually basis requirement and geography specific needs
*Positioning of the malls should be relevant to the target catchment
*Zoning and retail mix should also be considered
Retail mantra
*As a result of the recession of 2008-09’, several retail projects were stopped mid-way or did not take off. This led to a lower supply of retail. Today, things are gradually improving, says Bijay Aggarwal, Managing Director, Salarpuria Sattva.
* Rent is determined by volumes and the turnover a retailer can achieve. A retailer cannot afford over 10% of his revenue as rent. This needs to be kept in mind while determining rentals and also the projected IRRs for a mall developer, says Irfan Razack, CMD, Prestige Group
*Retail would benefit hugely from FDI, as this will mean many more brands and categories will be encouraged to enter the country, he adds.